The Senate has tasked the government to urgently address the depreciation of the Rwandan franc and high inflation, citing both issues as critical to the country’s economy.

The upper chamber of parliament made the observation on Tuesday, February 14, as it adopted the assessment of the 2021/2022 activity report by the National Bank of Rwanda (BNR).

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According to the report, in the second half of 2022, high inflation became a big challenge in Rwanda and slowed economic stabilisation efforts.

Inflation surged to 12.1 per cent in the first half of 2022, from -0.6 per cent recorded in the three quarters of 2021.

It indicated that the main reasons for rising inflation were unfavorable weather conditions, an increase in prices of agricultural inputs that led to poor performance of domestic agricultural production for seasons 2022A and 2022B, and high international commodity prices attributed to global Covid-19 restrictions and the Russia-Ukraine war.

"The committee realised that the report indicates two major issues that have an impact on the country’s economy. Those issues are the depreciation of the Rwandan franc, especially the US dollar, and inflation,” Senator Juvenal Nkusi, Chairperson of the Committee on Economic Development and Finance said.

Nkusi pointed out that the Committee commended the Government for continuing to put in place strategies meant to increase locally made products, and agricultural production.

"Also, the Committee appreciates that the implementation of those strategies, along with the already existing ones, will help the country to mitigate those issues and the effects they have on the economy and the social welfare development,” he said.

To deal with the inflationary pressures, the Monetary Policy Committee (MPC) decided to raise the Central Bank Rate (CBR) – the benchmark lending rates – from 4.5 per cent to 5 per cent, in February 2022, the Central Bank report showed.

Meanwhile, the Central Bank continued to increase such lending rates, reaching 6.5 per cent on November 15, 2022, with a view to tame inflation.

Senator Clotilde Mukakarangwa said that given the rise in inflation was partly attributed to inadequate agricultural produce, and challenges that farmers face accessing the market, efforts should be made to solve such problems.

Also, she referred to factors that lead to low yields, and produce damage including climate change effects on farming.

However, she said that there is a need to build agricultural resilience to climate change, such as through helping farmers to harvest rainwater that they can use to irrigate their crops during drought.

Exchange rate trends

The report indicated that as of end June 2022, the Rwandan Franc depreciated at a slower pace against the US dollar due to rising export proceeds, increased forex inflows from development partners as well as improving remittances despite higher demand for forex from importers of industry, energy and general trade sectors.

Year-on-year, the franc depreciated by 3.78 per cent as of end June 2022, lower than 5.34 per cent depreciation recorded in the corresponding period of 2021.

Senator Mukakarangwa tasked the government to explain measures that are being deployed to reduce the depreciation of the Rwandan franc against the US dollar "which we commonly use for importation of goods.”

However, despite the franc depreciating against the dollar, it continued to gain against other major currencies and recorded respective appreciation of 9.1 per cent, 8.8 per cent and 16 per cent versus the pound, the euro and the Japanese yen, after losing 18.61 per cent, 11.55 and 2.69 per cent in June 2021, according to the report.